Authors: Jefferson C. Hunt, Kimberly E. Civins, Elizabeth A. Garlovsky
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, bringing certainty to key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that were set to dramatically change at the end of 2025. With relative certainty set for the foreseeable future, now is the time for individuals to reexamine their current estate and tax planning objectives to determine what tax advantaged strategies to implement. OBBBA brought much-awaited answers about the Federal Estate, Gift, and Generation-Skipping (“GST”) Tax Exemptions (along with a sigh of relief) while introducing changes to charitable contribution limits for both individuals and corporations.
What’s New
Federal Estate, Gift, and GST Tax Exemption Increases
One of the most impactful components of the OBBBA is the increase in the individual estate and gift tax exemption. The TCJA had doubled the individual basic estate and gift tax exemption in 2017 to $10,000,000 indexed for inflation, and that exemption amount is currently set at $13,990,000 per individual for 2025. This doubling of the exemption, however, was set to expire on January 1, 2026, which would have resulted in the exemption amount reverting to $5,000,000 per person, indexed for inflation, and severely limiting the amount that an individual could pass tax free during life or at death. The OBBBA brings stability by making the increased exemption amount permanent, and setting the individual estate, gift and GST tax exemption amount at $15,000,000 as of January 1, 2026, which will be indexed for inflation in future years.
The OBBBA alleviates taxpayers’ need to rush to utilize their full estate, gift, and GST tax exemption amount before the end of 2025, and increases the exemption amount, thereby giving taxpayers even more flexibility when it comes to transfer tax planning. The increased $15,000,000 exemption is historically significant. The ability of individuals to transfer wealth at this level without suffering estate, gift or GST tax consequences has not occurred since pre-World War II (disregarding the temporary repeal of the estate tax for individuals dying in 2010), and it was less than 20 years ago that only a mere $2,000,000 could pass tax free. Because the OBBBA gave taxpayers the gift of more time, there is no race against the clock to make gifts to use up the exemption by December 31, 2025. However, by historical standards, taxpayers are primed to transfer significant wealth free of estate, gift, or GST tax at the highest level since the introduction of the estate, gift, or GST tax, and high-net-worth individuals would be wise to take advantage of this ability to maximize tax savings through wealth transfer strategies as soon as possible to achieve the maximum benefit and to avoid the risk that the law could change again with a future administration.
SALT Deduction
Another welcome change under the OBBBA provides some much-needed temporary relief (for some taxpayers) from the $10,000 state and local tax (SALT) deduction cap imposed by the TCJA in 2017. Starting in 2025, the SALT deduction cap increases to $40,000 for individuals and joint married filers (or $20,000 for married taxpayers filing separately). However, the deduction phases out for taxpayers whose modified adjusted gross income is above $500,000 ($250,000 for married filing separately) and reverts back to $10,000 for taxpayers whose modified adjusted gross income is $600,000 or more. The $40,000 SALT deduction cap and the modified adjustment gross income phaseout threshold will increase 1% per year starting in 2026 and running through 2029. However, the individual SALT deduction cap will revert back to $10,000 beginning in 2030.
The SALT deduction cap is complex and offers many planning opportunities. Taxpayers may be able to take advantage of the higher cap in the right situations by spreading it out across multiple non-grantor trusts or by taking advantage of SALT with charitable giving “bunching” strategically by tax year, or other income tax strategies.
Charitable Contributions
Starting January 1, 2026, taxpayers who do not itemize their deductions may claim a charitable deduction not exceeding $1,000, or $2,000 for married persons filing jointly. To qualify, contributions must be made to public charities that are neither donor-advised funds nor supporting organizations. This is a boon for taxpayers who do not itemize deductions on their tax returns as, prior to the OBBBA, taxpayers could only claim charitable deductions if their itemized deductions exceeded the standard deduction.
The OBBBA also institutes a new floor for charitable deductions for taxpayers who itemize their deductions. Starting in 2026, a taxpayer can only deduct charitable contributions to the extent that the amount contributed exceeds 0.5% of the taxpayer’s adjusted gross income. For example, if a taxpayer’s adjusted gross income for 2026 was $1 million, the first $5,000 of charitable donations will not be deductible.
Additionally, the OBBBA makes permanent the rule that limits charitable deductions for cash gifts to public charities to 60% of a taxpayer’s adjusted gross income annually. This limitation was set to roll back to a 50% adjusted gross income cap on charitable deductions, but now taxpayers can take advantage of this higher cap when making contributions to public charities. This limit does not apply to non-cash gifts or gifts to private foundations. However, the OBBBA also introduced a new “deduction value cap” of 35% for high-income taxpayers for charitable contributions. For taxpayers in the highest marginal tax bracket (which will remain at 37%), the value of their charitable contributions deduction is capped at 35%.
The OBBBA contains many additional provisions that may make charitable giving more complicated or that may limit a taxpayer’s ability to deduct their contributions. Unlike the reduced urgency to act with the estate, gift, or GST tax, taxpayers may want to consider accelerating certain charitable gifts before the end of 2025 to take advantage of the laws currently in place.
529 Accounts
The OBBBA also makes significant changes to 529 savings plans. While the tax-advantaged nature of these educational savings accounts has not changed there has been an expansion of what qualifies for tax-exempt distributions. As of July 5, 2025, funds from 529 plans can be used for an expanded range of educational expenses, beyond the traditional costs such as tuition, books, and room and board. Indeed, these 529 plans are slowly evolving from merely tax-advantaged accounts to pay for educational expenses to investments in beneficiaries’ careers.
Additionally, the OBBBA increases the annual tax-free distribution limit from 529 plans for K-12 educational expenses from $10,000 to $20,000 per student after December 31, 2025. This doubling of the tax-free distribution limit allows for greater flexibility with the accounts by allowing more tax-free dollars to be used for a wider range of educational expenses for children. While contributions to 529 plans still count against a taxpayer’s annual gift tax exclusion amount (set at $19,000 for 2025), these plans are proving to be even more valuable as options for tax-advantaged savings vehicles beyond just merely paying for college tuition.
What This Means/Why It Matters
While the OBBBA brings certainty to the feared decreases to an individual’s estate, gift, and GST tax exemptions (indeed the OBBBA actually INCREASED the exemption), high-net-worth individuals should not procrastinate in taking advantage of these tax benefits. As we have seen, tax law changes are a political football, and a change in control of Congress could dramatically alter the current, and historic, high estate, gift, and GST tax exemption landscape. As such, individuals should be proactive in their wealth transfer planning to maximize wealth transfer and minimize potential taxes.
Many familiar tax planning strategies are unaffected by the OBBBA, such as spousal lifetime access trusts, grantor retained annuity trusts, life insurance trusts, and many other irrevocable trusts. There are also new ways to maximize wealth transfers while minimizing tax liability which include utilizing the higher SALT and charitable contribution deduction limitations, and making contributions to 529 plans which now include a wider array of tax benefited distributions. Overall, individuals should work with their private wealth team to develop strategies that not only seek tax efficiency but align with their specific goals and circumstances.